When we think about the relationship between jobs and economic health, the first statistic that comes to mind is the unemployment rate. While the mainstream media focusses on the monthly U-3 unemployment rate, we very rarely see or hear anything about the rate of employment. In this posting, I want to look at a recent speech by the President of the Federal Reserve Bank of Minneapolis, Narayan Kocherlakota, and follow an extract from his speech with a more detailed look at a key measure of job market health.
Here is a key excerpt from Mr. Kocherlakota's speech:
"From December 2006 through December 2009, labor market performance deteriorated rapidly. The fraction of prime-age people who had a job fell from about 80 percent to 75 percent. Those people did not suddenly become disabled. Nor did they suddenly decide that they could have more fun playing video games than working. Rather, there was a large group of people with talents and skills who would have been employed in 2006, but were not being utilized by the U.S. economy three years later. In this sense, the 5-percentage-point decline in the employment-to-population ratio represents a dramatic and disturbing waste of America’s valuable human resources.
From the end of 2009 through December 2013, the share of prime-age people with a job rose very sluggishly to about 76 percent, still well below the pre-recession share. Employment data like these led more than a few observers to be concerned at the end of 2013 that the U.S. labor market was stuck in some kind of adverse “new normal.” However, the fraction of people with a job rose dramatically in 2014—by 0.9 percentage points—the largest December-to-December increase in over a quarter century. 2013 was not a new normal.
Unfortunately, this progress has slowed sharply in 2015. The fraction of prime-age people with a job has risen only 0.2 percentage point since December 2014 and is unchanged from its January 2015 level of 77.2 percent. As a result, this key metric remains almost 3 percentage points below pre-recession levels."
Now, let's look at a few charts from FRED that provide us with a graphical look at Mr. Kocherlakota's comments. The first chart shows the employment rate of all Americans between the ages of 25 and 54, the so-called prime-age workers, from 1977 to the present:
Prior to the Great Recession and going back to 1990, the employment rate hovered between 78.2 and 81.8 percent. Throughout 2007, just prior to the Great Recession, the employment rate for prime-age workers ranged from 79.8 percent to 80.2 percent. This fell rapidly during the Great Recession, reaching a 25 year low of 74.8 percent in November 2010. Since then, it has slowly risen to its current level of 77.2 percent (March 2015 data point), however this is still three full percentage points below the employment rate prior to the Great Recession. In fact, as Mr. Kocherlakota noted, the employment rate for prime-age workers has only risen by 0.2 percentage points between December 2014 and March 2015, hardly what one could term as a sign of a healthy job market.
For interest's sake, let's look at the gender breakdown for the same data starting with prime-age males:
From its pre-Great Recession (i.e. during the last economic expansion prior to the Great Recession) peak of 87.8 percent, the employment rate for prime-age American males fell to a low of 80.6 percent. Since September 2009, the employment rate for the same group has risen to 84.5 percent, still 2.3 percentage points below the pre-Great Recession level and is still below the rates seen prior to the Great Recession going back to 1977.
Here's the same data for prime-age females:
From its pre-Great Recession peak of 72.7 percent, the employment rate for prime-age American females fell to a low of 68.9 percent in the third and fourth quarters of 2011. Since then, there has been very little recovery with the Q4 2014 rate hitting only 70.2 percent, an improvement of only 1.3 percentage points and a level which is still 2.5 percentage points below the pre-Great Recession level.
The poor recovery in the employment picture for prime-age Americans is of great concern, particularly since it is these individuals that are responsible for the majority of economic activity in the United States. At this point in the economic cycle, this is particularly pertinent given that the Federal Reserve is waffling on when to liftoff interest rates, looking for evidence that the domestic economy is firing on all cylinders. Looking at the employment rate for workers between the ages of 25 and 54 suggests that the Federal Reserve's experimental monetary policies have been somewhat less than fully successful and that should the economy enter another recession soon, the low current employment rate for prime-age American workers means that these workers/consumers will find themselves far worse off than they were during the Great Recession.